Savings v investments - what’s a good proportion of each?

masonic

All things being equal, I'd start from a position of being around 90% invested with around 10% savings (or other cash equivalents). In fairness, I'm currently not far above that and will probably hit it by the end of the year.

The challenge has really been the composition of the 90%, where I've been moving from solely equities to a mix including commodities and index linked gilts. And I probably have been neglecting corporate bonds (although they do tend to behave like equities diluted with government bonds, which doesn't really help me diversify). But I have reached a happy medium that doesn't have too many eggs in the basket of the world's largest few companies.

The index linked gilts are earmarked for an inflation linked annuity in the future (matched to the future liability of buying that) - or I may just use them to provide a DIY income stream. This effectively locks in an inflation-linked income stream at a price that could only have been dreamt of during the zero-interest rate era, and some probable peace of mind at a time when I may not be quite as interested in managing investments as I am today. This will provide me with a stable income floor in retirement.

The remainder will be the icing on the cake and will remain invested for many years, so it will remain in high risk assets for the foreseeable future. It helps to hedge against unforeseeable risks associated with the pound and the national debt, which I am now heavily invested in.

chiang_mai

https://forums.moneysavingexpert.com/discussion/comment/82000297#Comment_82000297

It's fascinating that some of us start by considering our future cash needs but others begin by considering the degree to which they want to be invested. Both parties arrive at the same point eventually but there's something Freudian or survivalist about the person who considers their cash needs first.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82000433#Comment_82000433

The cash needs are the part that shouldn't be invested, so it is the logical place to start. But even defining that can be a very subjective exercise. I would consider 3 months living expenses inadequate to give me the financial security to weather various misfortunes I'd want to insulate myself against.

So my 10% gives me a generous buffer without going to extremes. Others might end up at a mere 5% or less in the same circumstances, but would perhaps take out a wider range of insurance products than I'd consider to be worth it.

Some are likely lacking in confidence regarding the merits of investing as opposed to saving, so are limiting their exposure in case it turns out to be a mug's game, like they may have been warned by others around them.

While a few may be over-confident and end up putting money at risk that they need in the short term. Though this forum tends not to be biased in that direction - quite the opposite.

ShinyStarlight1

https://forums.moneysavingexpert.com/discussion/comment/82000297#Comment_82000297

Thank you for that thoughtful reply - may I ask how far you are from retiring (a rough estimate will do)?

ShinyStarlight1

It really is imteresting how people have different approaches, and why.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82000449#Comment_82000449

Good question. I don't think it will be this year, but I am just about ready to pull the trigger. But I will need to bridge 10+ years without access to any pension accounts.

RobfromCornwall

Cash is just under 7% of my total savings and investments. This equates to a couple of years of spending. I'm a long way from retirement.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82000297#Comment_82000297

The index linked gilts are earmarked for an inflation linked annuity in the future (matched to the future liability of buying that)

I've been considering the same in case there's a bargain to be had in coming weeks - what sort of time point did you consider for maturity (20yrs past retirement for e.g.) or is it a range? I tried to ask a pensions advisor exactly this question and they replied they didn't think I should consider annuities at all, but I'm looking for the base-level insurance of one (or a ladder) at some point I think.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82000540#Comment_82000540

I've aimed for about 15 years duration at the point I'd be looking to purchase, on the basis products are priced for a 30 year retirement. The relationship is more of a rule of thumb than a rule, but one would expect a rise in value roughly in line with any fall in annuity rates at that region of the curve.